I have encountered this problem when trying to Auto detect Web Proxy using WPAD. I kept trying to detect the WPAD using DHCP and DNS many times. I kept deleting and recreating the WPAD recods for both DHCP and DNS using Fully Qualified domain. I also tried using AD Key marker but always fails to detect it. Once I have replaced the TMG server Fully Qualified Domain in the TMG internal card configurations with the IP address of this TMG server, it detects it with no problem (confusing!!):???:.
Pls note that I have excluded the WPAD from the dns block list. The TMG client software can only detects the Active directory choice “using IP address only” but not DNS and DHCP